Demand elasticity of pricing for charters

[Tortuga James]

I got frustrated because I had 3 days blownout last weekend and I had nothing on the books for this weekend. When the weather started shaping up for this weekend, I got even more frustrated when I thought I was going to sit at the dock.

So I decided to see how much discounting my seats would affect the demand for those seats. I ran a special 2 days out for Saturday and Sunday. My normal pricing is around $145 per diver including the fuel charge. I set the special price at $105 for a normal offshore day including the fuel charge. Worthy of noting is that the pricing for most of the boats in our area is in the $125 range, except for a few of the other 6 pack boats.

What I learned amazed me. I sold both days out in less than 24 hours. Obviously, that price was too discounted. I don't plan on lowering my pricing for advanced reservations, and I am not sure I will utilize this strategy again. This weekend was one of only a couple that were not booked for the whole season. I worry that it is a slippery slope and I have no intention of becoming a "discount charter".

Thoughts?

 

[japan-diver]

Discounting can be a very slippery slope. I have a competitor here that started his business this year with very steep discounts to build a clientele - now he is trying to raise his prices and says he can't because his customers will not pay. You do not want to "train" your customers to expect a low price. A discount from $145 to $105 is almost 30% thats a steep cut. If you are normally a few dollars above the other charters a sale of 10-15% off on a slow weekend to try to get new clientele would be advised- you do not want to make it a regular thing as your clients will wait for those days to book. Sales should be used to try to attract new clients or reward regulars to make them feel special. I use special "invitation only" sales to reward my regulars to fill slow weekends- keeps my regulars happy and I let them now they were invited because they booked "x" number of charters at regular price, keeps them coming back for regular charters because they know it gets them the invite on the deep discount days (normally about 25%). Sell your services not your price.

 

[Tortuga James]

My father, an experienced retailer used to get mad at me for resenting the behavior of "sale" customers. He would say that they are as important as your full price customers because they buy the stuff the regular customers don't buy. I would always argue that discounting would make everyone wait for the sale prices, but he insisted the sale customers only bought at sale prices and the customers that want the "first cut" would always pay up for that.

I was just really surprised how a discount on a short term availability had people coming out of the woodwork. I have turned away twice the people that I booked because I was full. What really blew my mind was that it was over $40. That might be a deep discount in my fee, but that is only half (or less) than the total expense of a day's diving when you factor in travel, lodging, and food and beverage. I really don't understand the economic dynamic. Bottom line is I can't afford to do this every weekend, but for this weekend I would rather make $800 than not make $1200.

 

[Mike Campbell]

Off topic kinda but the Uboat had 80' visibility and ripping current today. Spar had about the same with less current and I heard the Naeco had 100' and no current.....
Mike

 

[Tortuga James]

It ended up being a fantastic weekend. I was able to pull in mates that are credentialed so I got to dive. We followed Midnight around. 2 on the Shurz sat, Sub/Spar on Sunday.

 

[Wookie]

Exactly who do you want for customers? I agree a bit with your dad, that we train our customers to wait for last minute deals. The current policy of hotels.com makes me furious when I see the ad on TV, but hey, everyone needs a customer. In my experience, however, the better divers by far are the ones who plan their trips in advance, do their homework, and decide that your charter is a match for them. The folks who are merely looking for the best deal and don't care what boat they get on are exactly (IMHO) the customer I don't want. Remember, I have to live with them for 3-5 days, so I'm in a bit of a different category than you are, but they tend to be not as good divers, a bit more rude and inconsiderate of other divers, and lousy tippers.

I'd much rather throw a bone to my full price customers by giving them a significant discount on their following trip (buy a full price trip today, receive 1/2 off on your next charter). This lets you know 2 things. First is, did they like you enough to come back, and second is do you like them enough to have them back. Most of us base our businesses on repeaters. It takes 10 times the effort to attract a new customer then to retain an old one. It also gives you marketing information about them if you roll that way.

I never ever ever ever discount. Not even the price of the commission.

Frank

 

[Tortuga James]

Wookie, Dad's theory was not that we train customers to wait for sales, that was my objection to his practice. He contended that sale customers will only buy on sale (which corresponds with your question about what sort of customers do you want) and they are just as important as the full price customers that buy the best of the best when the merchandise arrives. Dad's idea was that the sale customers come and buy all the stuff the full price customers didn't want, and thats important to turn that stuff into cash so you can go buy more of what the full price customers want.

Charter dates in the short term are perishable. If you don't sell them, you stay at the dock and the chance to run those days are gone. You are right, the better customers (full price customers) plan ahead. They make deposits and show up. What I did was an experiment because I wanted to see what would happen and I didn't want to sit at the dock. I had tried to promote the opening at regular pricing and didn't get a nibble.

I don't have an open weekend again until mid october, so I don't have to try it again. But I don't think it damaged my business or my reputation.

 

[Akyla]

How many of the divers on board were your regular customers that just responded to an opening when they knew it was going to be good weather? Up here JT was running a discount deal on fridays last season. He found that almost everyone that signed up for it would have probably been there anyway at the regular price so he did not do it this season.

I am actually thinking that might be priced too low and going to creep the price up a bit since the costs are not going the other way for me. The fact that you have all your available dates booked is an indicator that you are really just fine and the one opening was an anomoly not to be worried about. I am already booking the 2012 season as they get off the boat so something is going OK.

 

[Tortuga James]

2 of them were actually JT's customers.

One was a local make up diver, one was totally new, but had been emailing me about possible dates and the rest had been on the boat, but not too much.


Costs are surely not going anywhere but up. I just had to make my annual boat insurance and professionl liability premiums. That is a month's worth of running every saturday and sunday to crack that nut.

I have to say, I haven't taken a single booking for 2012 yet. You must be doing something right.